GBP/EUR Exchange Rate Plunges to Two-Month Low in Response to BoE Policy Decision

The Pound to Euro exchange rate took a dive last week, striking its worst levels since March in the wake of the Bank of England’s (BoE) latest policy decision.

What’s Been Happening: Pound Hit by BoE Driven Sell-Off

The Pound initially got off to a strong start last week, with the currency able to shake off some underwhelming employment and inflation figures thanks to some Brexit optimism from Boris Johnson.

Following a phone call with European Commission President Ursula von der Leyen, Johnson said he was confident a trade deal will be reached by the end of the year, even claiming an agreement could be possible in July with a ‘bit of oomph’.

However the Pound took a sharp dive in the latter half of the week after the BoE concluded its latest policy meeting with the announcement it would expand its stimulus programme by £100bn, but slow the pace of bond purchases.

Meanwhile, the Euro, after a slow start to the week in response to some poor trade figures from the Eurozone, found its gains against the Pound tempered ahead of a virtual EU summit, in which EU leaders failed to reach an agreement on the terms of the EU’s coronavirus recovery fund.

Three Things to Watch Out for This Week

1. UK PMIs

In the spotlight for GBP investors this week will be the UK’s latest PMI figures, where a notable improvement in private sector activity may offer some support to the Pound.

2. Eurozone PMIs

The publication of the Eurozone’s own PMI figures is likely to act as a key catalyst for the Euro as well this week, with EUR exchange rates poised to strengthen if economic activity in the bloc continued to improve this month.

3. ECB Minutes

Also influencing the Euro this week may be the minutes from the European Central Bank’s (ECB) most recent policy meeting as EUR investors look for more insight into the bank’s outlook on policy.

GBP/EUR Forecast

Looking ahead, movement in the GBP/EUR exchange rate looks to be dictated by the latest PMI figures from both the UK and Eurozone. Will a particularly strong showing from the UK help the Pound come out on top however?

Matthew Andrews

Contact Matthew Andrews